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Interest Rate Risk

Author

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  • Craine, Roger N.
  • Pierce, James L.

Abstract

Much of the literature on the adequacy of bank capital is concerned with the role of such factors as default risk and faulty management. These factors are important but they neglect the role that purely stochastic elements can play in affecting the capital of a well-managed bank, even if it is free of default risk. Because banks raise funds by issuing liabilities with different maturities than the assets they acquire, changes in the interest rates paid on these liabilities relative to the interest rates on assets will affect earnings and, hence, bank capital.

Suggested Citation

  • Craine, Roger N. & Pierce, James L., 1978. "Interest Rate Risk," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 13(4), pages 719-732, November.
    • Handle: RePEc:cup:jfinqa:v:13:y:1978:i:04:p:719-732_00
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